Who benefits from the Mastercard ban in India?

India’s decision to ban Mastercard from issuing new debit and credit cards in the country could be a win for the government’s own payment systems – and that’s not all good news.

on July 14, the Reserve Bank of India (RBI) said: US-based Mastercard had failed to comply data storage rules from 2018 (pdf) that require foreign card networks to store Indian payment details in the country so that the regulator can have “unlimited supervisory access”. The ban on Mastercard will come into effect on July 22. RBI’s move will not affect existing Mastercard customers.

Most banks in India offer: four types of debit and credit cards: Visa, Mastercard, Maestro (a part of the Mastercard company) and RuPay. Of these, only RuPay is Indian and until its launch in 2012, the sector was dominated by foreign players.

With one of these four out of the picture, experts believe that RuPay could be the only player making exceptional profits. This is mainly due to the crackdown by the Narendra Modi government against foreign card companies in recent years.

Reliance on foreign brands is deliberately reduced as the government seems to focus on making homegrown a success. This is probably a push for the banks to think seriously about homegrown names,” said Mumbai-based independent market analyst Ambareesh Baliga.

Mastercard, RuPay and UPI

Ban on Mastercard, the world’s second-largest payment processor, comes after India’s central bank bans American Express and Diners Club International from issuing new cards in May as a result of similar violations.

Customers from these two networks flocked to RuPay, which is owned by RBI’s National Payments Corporation of India, and was already a dominant player with a market share of about 60% (pdf) in November 2020. Experts believe a similar trend will follow Mastercard’s ban. Mastercard currently accounts for nearly 33% of all card payments in India.

“Data localization is a big problem on a global level… With Mastercard banned, Visa and RuPay will be the main channels. Most banks will now partner with more than one payment company. Many PSU banks already offer RuPay cards,” said Asutosh Mishra, head of institutional equity research at Ashika Stock Broking.

The other beneficiary of the ban would be the Unified Payment Interface (UPI), a digital payment system partially owned by the state. UPI payments, which are made from one bank account to another without adding a payee, can be a substitute for cards. The UPI payment process is simpler, faster and more secure, making it a contender to replace card payments. In addition, there are no transaction fees on UPI payments, unlike credit cards.

The two Indian platforms may be headed for great times as experts warn that even Visa could see a ban like the one faced by American Express, Diners Club International and Mastercard. However, this trend can be dangerous.

RuPay in Modi’s India

While the government-owned platforms bring in more business, customers have a lot to lose from the ban on international card networks, as it leaves Indians with limited options. Moreover, international companies could see this as a barrier to free trade, making them wary of protectionism in India.

The Modi government has been accused of using nationalist sentiment to promote RuPay in the past.

In 2014, when Modi launched its flagship financial inclusion campaign, Jan Dhan Yojana, beneficiaries were offered a basic bank account along with a free RuPay debit card. Foreign payment companies such as Mastercard and Visa were left out of this project.

In 2018, Modi had appealed to Indians to serve the nation by using Rupay debit and credit cards instead of foreign card networks.

MasterCard reportedly had raised the issue with the U.S. Trade Representative’s office in 2018, saying that Modi “associated the use of RuPay cards with nationalism and claimed it serves as ‘some sort of national service’.”

The return of Mastercard to India

Baliga believes Mastercard will leave no stone unturned to keep its customer base in India intact, even if that means that you must meet the requirements set by the RBI. In 2019, Mastercard had announced an investment of $1 billion (Rs 7,452 lakh crores) in the country over a five-year period, following a previous investment of the same amount in 2014.

We are “fully committed to our legal and regulatory obligations in the markets in which we operate,” the company said in a statement following the RBI ban. “While we are disappointed with the RBI’s position in their July 14 communication, we will continue to work with them to provide additional details needed to address their concerns.”

Meanwhile, banks with an exclusive partnership with Mastercard are already looking to partner with other payment networks to issue new cards. RBL Bank, Bajaj Finserv and Yes Bank were the most affected lenders due to the ban. On July 15, RBL Bank entered into an agreement with Visa Worldwide (pdf) for issuing credit cards.